Proceeds of crime Contents

Conclusions and recommendations

Early restraint and seizure

1.Criminals are becoming more sophisticated at concealing the proceeds of their crimes. Ensuring the efficient recovery of these proceeds should be one of the first issues an investigator tackles. Ideally, assets should be frozen simultaneously with the criminal becoming aware of the investigation for the first time (this will often be at the time of arrest, although not always). Waiting for a conviction is far too late. As part of their training police officers should be equipped to deal with these challenges. (Paragraph 14)

2.We recommend that, upon entry into the service, all police officers receive at least one full day of financial investigative training, accredited by the National Crime Agency (NCA), so that all officers are equipped to secure recovery at a much earlier stage and have a good understanding of the impact of charges, offences and pleas on asset recovery. Secondly, all detective officers should receive advanced financial investigation training on at least an annual basis so that appropriate evidence is gathered about financial gain, as well as criminal conduct in every investigation into a serious crime offering financial gain. We recommend that NCA training and accreditation of specialised financial investigators emphasises the importance of initiating asset freezing at the earliest stages of an investigation. Performance against this objective should be measured for all the agencies involved by recording whether assets are frozen and ready to be recovered as soon as a confiscation order is made. (Paragraph 15)

Specialist investigators

3.We heard in evidence that retention of investigators with necessary but scarce skills in financial investigation is a problem. Skilled staff are being “poached” from the public sector because it cannot match the remuneration incentives being offered by large financial firms—which may themselves be increasingly concerned about becoming the subject of financial investigations. We understand that a cross-Whitehall working group has been set up to try to address this issue. The Government should publish details of the working group’s membership terms of reference, remit and timetable for reporting its findings immediately. When the report is published, we expect it to include a clear timetable for action and targets for progress on recruitment and retention against which subsequent progress can be measured. (Paragraph 18)


4.It is crucial that the financial services industry (and connected industries such as real estate and professional services) have confidence in the robustness and objectivity of reporting what they consider to be suspicious activity. Without the support of industry, investigation and enforcement agencies will be unable to target some criminals, nor spot patterns of wrongdoing. (Paragraph 20)

5.We have been deeply concerned for some time that the ELMER system for Suspicious Activity Reports (SARs) is heavily overloaded and therefore rendered completely ineffective. The ELMER system currently processes 381,882 SARs despite being designed to manage only 20,000 and, of this figure, only 15,000 looked at in detail. We have reminded the Government time and again that it must be replaced. The failure of ELMER has made the SARs system a futile and impotent weapon in the global fight against money laundering and corruption. We note that the Government has finally given a commitment to make the system work in this year’s Queen’s Speech, although we have yet to receive details of how this will be achieved. An effective regime to help organisations report suspicious financial activity must be introduced without further damaging delay. We recommend that the Government replaces ELMER with a robust system for handling Suspicious Activity Reports by 31 December 2016. (Paragraph 24)

6.To repair the damage to the reputation of the SARs regime caused by the failure of ELMER, we recommend that the Government involves those who actually use the SARs system to make reports—as well as those charged with investigating at the other end—in designing the replacement to ELMER. Only by doing so can the Government rebuild industry’s trust in the regime and ensure that the next generation of SARs does not suffer the same fate. (Paragraph 25)

Confiscation courts

7.We received strong evidence that the creation of a ‘confiscation court’ would combat the current lack of interest in confiscation orders among prosecutors and judges, which has led in turn to a lack of training and specialist skills. Specialist courts would enable complex confiscation hearings to be dealt with more efficiently and with much greater expertise, with the added bonus of leaving Crown Courts more time to focus on criminal trials. We recommend that the Government takes the necessary steps to establish confiscation courts to allow for serious and/or complex confiscation hearings. For example, we would expect these courts to hear those cases featuring cross-border financial transactions, use of corporate vehicles or very high value proceeds. (Paragraph 34)

8.The creation of confiscation courts would encourage the specialisation of judges in the area of proceeds of crime. This would mean that one judge could deal with the financial aspect of a serious and/or complex case from cradle to grave. The confiscation courts must therefore be properly resourced, with highly motivated and expertly trained judges and prosecutors, to ensure the highest standard of understanding and consistency in the application of this aspect of the law. (Paragraph 35)

Enforcement and collection

9.Despite some reforms to the incentive system for recovering proceeds of crime, the Government has failed to satisfy the National Audit Office (NAO) or us that the system is fit for purpose. We agree with the NAO that there are significant weaknesses in the Asset Recovery Incentivisation Scheme (ARIS), specifically in that it rewards those who have not been affected or taken a role in the recovery of assets. (Paragraph 42)

10.We recommend that the Government applies a new formula which ensures that at least 10% of the criminal assets recovered are returned or donated to the communities which have suffered at the hands of criminals, for example through charities. This must not disadvantage the agencies that have worked hard to recover the assets, but instead should be deducted from the 50% portion which the Home Office currently takes. (Paragraph 43)

11.We recommend that outstanding confiscation orders be put onto the Police National Computer by merging or connecting the Joint Asset Recovery Database with the Police National Computer so that the police on the front-line know that a suspect is in breach of a confiscation order and can act on it. It is ludicrous that the PNC can tell a police officer that a suspect owns a dog but not that they are evading payment of a criminal confiscation order. (Paragraph 46)

12.Greater coordination and collaboration between public bodies involved in POCA and the private sector could result in more efficient collection of proceeds of crime and the denial of assets to criminals. We recommend that the Government creates a market for the private enforcement and collection of unpaid confiscation orders once they enter arrears, earning a fee from a portion of that order. The Home Office has already stated that it will look at enhancing cooperation with the private sector to improve asset recovery. We recommend that the Government acts upon this aspiration and shares information and evidence between law enforcement and the private sector to achieve this. (Paragraph 50)

Money laundering

13.Money laundering is undoubtedly a problem in the UK, as with any established and large financial centre. It is disgraceful that at least a hundred billion pounds is being laundered through the UK every year. If the UK is to remain the centre of global finance, this must be addressed. The evidence we have received leaves no doubt that the success of POCA, and indeed the standing of the UK as a global financial centre is dependent on proactively and effectively tackling it. The Government has recently announced some significant and wide-ranging policies towards improving its record in preventing and prosecuting money launderers. We expect the Government to provide a report on the impact of these policies by January 2017, before we return to this issue next spring. (Paragraph 60)

14.We heard that money laundering takes many complicated forms. These range from complex financial vehicles and tax havens around the world through to property investments in London, to easily transportable and high value jewellery. It is astonishing that just 335 out of some 1.2 million property transactions last year were deemed to be suspicious. This suggests to us that supervision of the property market is totally inadequate, and that poor enforcement has laid out a welcome mat for money launderers. The recent policies announced by the Government must include enhanced supervision of the property market and both sides of the transaction—buyers and sellers—must be included. (Paragraph 61)

15.At the moment it is far too easy for someone intent on laundering money to buy a property with their ill-gotten gains, and rent it out in a very buoyant and robust letting market, and take in clean money in perpetuity. We recommend that, as with estate agents and other professional services, letting agents must use the Suspicious Activity Reporting regime (SARS) system and undertake appropriate due diligence when taking on new clients. (Paragraph 62)

Measuring success and accountability

16.The benefits from POCA include both the efficient collection of criminal assets and the effective disruption to criminal activities. Although the disruption element is clearly more difficult to quantify, we believe that success should be measured against both. Collection rates are only one element by which the Government should be held to account but they are an important one. We recommend that the Home Office publishes annual statistics on the wider elements of its performance in depriving criminals of their gains. These should include measures against all three of the Home Office’s stated aims:

These publications should encompass a measure of how crime rates have been influenced by denying criminals their assets, as well as complete lists of all assets seized from criminals over the course of the year. (Paragraph 66)

Tackling non-payment

17.The NAO reported that, at September 2015, there was £1.61 billion total debt outstanding from confiscation orders. Given the organised nature of many of the criminals subject to large confiscation orders, it is likely that the majority of this money has now been hidden and is beyond the reach of the authorities. We also heard that that figure is so large because often a confiscation order is made for assets that may never have even existed. This is because, when a criminal refuses to engage with the POCA court proceeding, the judge is left with no option but to demand the full amount rather than the prosecution and defence agreeing the actual collectable amount. We therefore recommend that the courts be given a power to compel attendance at a confiscation hearing. Even after a confiscation order has been made, there are very few incentives for criminals to either engage with the courts or to pay the money back, with many choosing to extend their prison sentences and avoid paying. (Paragraph 74)

18.We agree with the Metropolitan Police Commissioner, Sir Bernard Hogan-Howe, that non-payment of a confiscation order should be made a separate criminal offence. To enforce this, we recommend that no criminal be allowed to leave prison without either paying their confiscation order in full, or engaging with the courts to convince a judge that their debt to society is squared. (Paragraph 75)

19.Given the global nature of many of these crimes, we recommend that the Government confiscates the passport of any criminal subject to a confiscation order. With non-payment of a confiscation order a separate criminal offence, the Home Secretary should use her discretion to deny criminals owing the state money under such an order the ability to evade payment by travelling abroad. These criminals will remain wanted for the crime of non-payment and travel restrictions are needed to ensure effective enforcement of the court order. (Paragraph 76)

20.The £1.61 billion figure for uncollected debt is largely artificial as nearly a third of it represents interest and penalties for non-payment. Using a figure largely made up of uncollectable debt and interest to calculate the overall debt owed could therefore be construed as unhelpful. However, judges have determined that this money is owed to the state as a result of criminal activity and we believe that it should not just be written off. To ensure effective scrutiny and to avoid skewing confiscation rates, we recommend that, when collection rates are reported, they are now set in the context of ‘collectable’ and ‘uncollectable’ debts. We are clear that this is in no sense a recommendation to wipe the slate clean. Rather, this would allow the authorities to concentrate their time on debts which can be collected and when somebody with an outstanding debt comes into significant funds the authorities would then be able to collect that debt. Criminals still owe this money, and will accrue interest on their debt to society. There is no expiry date on this debt because crime must never pay. (Paragraph 77)

Establishing a lead agency

21.We have found that the number of agencies involved in the recovery of criminal assets is complicated and, at times, confusing. This is partially a symptom of the different methods necessary to deprive criminals of their gains and the different opportunities for those recoveries. We agree that enforcement of POCA must remain at a local level but the current system lacks a clear line of overall responsibility, strategy and accountability. We therefore recommend that the National Crime Agency be made the lead agency for the recovery of criminal proceeds. (Paragraph 81)

22.Once the NCA is established as the lead agency and is accountable as such, it is only fair that it be given resources and tools to influence performance. We recommend that the NCA be enabled to incentivise other agencies as it sees fit to ensure effective collection regionally. Specifically, we recommend that the Asset Recovery Incentivisation Scheme (ARIS) be put under the control of the NCA to be used as a tool to resource and incentivise effective collection of criminal assets. (Paragraph 82)

Coordination and data-sharing

23.There are several databases and sources of information relating to the various enforcement agencies involved in POCA. Indeed, each agency involved in POCA is likely to have its own database. We recommend that, once the NCA has been established as the lead agency, it takes steps to merge all of the sources of information and data used to pursue criminal assets (including the replacement to ELMER) into one ‘asset recovery database’. This database should be under the control of the NCA, but capable of being openly accessed and updated by all of the relevant agencies, with the necessary security systems in place. (Paragraph 85)

24.We were surprised to learn that confiscated assets, taken for use in court and other proceedings, cannot be traced from the point of seizure to their being deposited in a Queen’s Warehouse. Amazon and the Royal Mail have offered “track and trace” services for many years. We fail to understand why the Home Office has not kept pace in the same way, given the value of the assets concerned and their importance in the evidence chain. We recommend that, in its review of all proceeds of crime databases, the Government overhaul and modernise the ageing systems currently used to track millions of pounds worth of confiscated assets. We expect this to have been completed by the time we revisit this issue in spring 2017. (Paragraph 87)

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11 July 2016